Thursday, June 20, 2013

Correction finally here?

This is one of the strangest rally we had since the March 2009 bottom. No other rally fooled me more than the present one. Is this the end of this long rally? Probably, but after being wrong twice in a row my level of confidence is not so high at the moment. What happens now and din't happen during the previous fake sell signals? First of all, SPX slipped bellow SMA 50 on daily chart, a level that offered a very good support since November last year. Even more important, SPX went bellow a very well established uptrend line. 

Another event that happened for the first time since the beginning of the rally is SPX slipping bellow SMA 120 on 4 hours chart. EMAs are not giving a bearish crossing yet but they are touching, something that didn't happen in the last 7 months. No matter the final outcome, this is the most bearish momentum in 7 months.

Weekly chart doesn't provide too much information, except a way to figure out the first posible support level that is around 1,555. Weekly DMI remains positive for now. 

Gold and silver are hammered again, no surprise here since both of them are already in a bear market.

What I found interesting is the market reaction to Ben's comment that he is going to end up the quantitative easing. This is in fact a positive thing, it means that he thinks the market is robust enough to continue growing without the QE. Apparently the market participants are not convinced that this is the case, a.k.a. the market needs more money to survive. Or it may be just an escuse to take some profit after such a long rally. On the way down, from 2007 to 2009 I remember Feds lowering the interest rate, an event that was always followed by a rally in the market. I couldn't understand the market's reaction since a decrease in the interest rate was a clear sign that the economy was in a big trouble. Rest assured a few weeks after a temporary rally the market was establishing fresh lower lows. 

What happens now is the reverse of lowering the interest rates, a sign that the economy is on right path. If Ben is right expect another powerful rally after this correction is done. 

All the best!


Friday, May 31, 2013

Second straight week on the downside

It was a quiet, boring trading week until today, or more exactly until the last hour of trading when SPX lost 24 points. The week ends with a 22 points loss but on monthly basis SPX gained over 30 points making this month the 7th straight month on the upside, a pretty solid rally.

The bullish momentum is still intact on all time frames. The 4 hours chart still shows a bullish EMAs crossing but the price crossed today both EMAs. SMA 120 is at pretty safe distance, 40 points bellow but remember that not too long ago the difference between price and SMA 120 was no less than 100 points, one of the biggest difference since the March 2009 bottom. So the market remains bullish but not as crazily bullish as it was a couple of weeks ago.  Notice that the 7 months rally uptrend line is also around 1,590 so this is the best support this rally has.

Just above SMA 120 and rally's uptrend line is SMA 50 on daily chart, a level that behaved as a very good support in the last 7 months, so somewhere in the 1,590-1,600 area we should see a fierce battle between bulls and bears.

Weekly chart shows a very bullish picture, with weekly DMI still at a high level.

In conclusion, SPX remains bullish on all time frames. To change the trend bears need to push SPX bellow the 7 months uptrend line that is now around 1,590. Sounds easily done since SPX lost no less than 57 points since its all time high around 1,687 but it may not be so easy. Bulls have bought every single dip in the last 7 months and I will not be surprised if they are going to defend the 7 months uptrend line once again. 

Have a nice week end!


Friday, May 24, 2013

Slightly down

After touching a fresh intra-day high of 1,687, SPX pulled back no less than 30 points the same day. Two attempts (yesterday and today) to push market further down were unsuccessful. After going down to 1,637 in the morning SPX rallied to 1,650 bringing the total loss this week to 15-17 points. this drop was not sufficient to bring any major changes at the technical level. Market remains overbought on short term in my opinion and further lateral consolidation is the most likely scenario.

Despite the 15 points drop the weekly DMI did not move down.

However, daily DMI moved down considerably, now being only slightly positive. 

The four hours chart shows little change. SPX is just barely bellow EMA 25 but SMA 120 is far away, around 1,580. Around the same level you can see the 6 months rally uptrend line.

Gold and silver moved up a little bit this week but they remain vulnerable on long run. Notice the weekly DMI deeply in red.

Overall, market will probably cool down again next week. SPX remains overbought in all time frames and it will be easy for bears to chop another 10-15 points. But, again, this will not change the big picture. To make a big dent in the rally bears need to push SPX bellow the 6 months uptrend line. That would mean a loss of 70 points on SPX. Not an easy job.

Friday, May 17, 2013

Another day, another record high

Forth week in the row on the upside and market, once again, claims record highs. This is one of the longest rally since the March 2009 bottom, 6 months old and no less than 300 points on SPX.

However, looking at the charts on all time frames it looks like market is getting overbought. Look on daily and weekly chart at DMI, they are all positive, of course, but notice their value, quite high I must say.

Also notice that SPX is almost 100 points above rising SMA 120 on 4 hours chart. I don't remember when was the last time I saw such a big difference between price and SMA 120.

So, I have reason to believe market may cool down a little bit. It doesn't mean we are going to see a drop, it means that the market may suffer a lateral consolidation rather than going straight up. This is my guess based on how charts are looking at the moment.

The rally we are seeing don't look like short squeezes to me, it looks more like new money is entering the market.

Gold got crashed this week and we should not be surprised since technically it's in a bear market, meaning rallies are short lived and fresh lows are expected. Metals and mining stocks (X, CLF, WLT) are also down this week but not as much as gold or silver. If you want to short gold you can try GDX instead of GLD.

All the best!


Saturday, April 27, 2013

Here we come again

Somebody please help me take the foot out of my mouth! Another bad call from my part, here is the second whip-saw in the row (third actually but I didn't fell for the first one) during this crazy rally. It never happen before, I mean yes, I've got whip-saws but not three of them during the same rally. This is the most volatile rally I've seen in years. OK, bulls, I understand you are very confident, very powerful these days but why are you letting SPX slipping 60 points in a matter of days? Just to annoy me? 

I guess I have no other choice but rely on 4 hour chart which, once again, did not get whip-saw. Or even better I should forget about making money on the downside and focus on the next rally whenever is going to happen. 

The most interesting chart at the moment is the weekly chart. There is there a very nice support line that was actually crossed during the fake plunge but only for one day. Some people may argue that market is developing a "head and shoulder" with the support line I mentioned above as the "neckline". Well, this pattern is possible with one condition, that the "neckline" to be crossed before SPX making another all time high. 

It doesn't look like a textbook "head and shoulder since the right shoulder it is supposed to be shorter than the left one (not the case here) like it was in the case of AAPL which predicted a drop to 360 (AAPL actually dropped to 380, but this was a good enough prediction).

All the best!


Friday, April 19, 2013

Really frustrating

After getting a sell signal yesterday, there was no continuation today and SPX is now once again above SMA 50 on daily chart. Even worse, bulls managed to push SPX just above the support level on weekly chart.

So, despite EMAs bearish crossing, bulls remain slightly in control. Another bullish day on Monday with SPX climbing above SMA 120 will cancel the sell signal.

Let's look now on a longer time frame, on 4 hours chart. As you can see EMAs are not crossed on this time frame and price is above rising SMA 120. EMAs are closer to each other than was on February when I've got the fake sell signal, meaning that indeed there is more bearishness this time around but not enough to call the game in bears' favor.

Let's wait for Monday to see "from which direction the wind will blow".


Thursday, April 18, 2013

Sell signal

The correction seems to be here! Another day on the downside and  EMAs are giving a bearish crossing on two hour chart. We've seen EMAs crossing before and the market refused to correct but this time bears also managed to push SPX slightly bellow SMA 50, an event that didn't occur during the 5 months rally. 

SPX broke bellow support levels on both daily and weekly chart. In general, the most valuable support levels are those seen on weekly chart. Unless tomorrow is going to be a very bullish day I think this is the beginning of the highly anticipated correction. 

It will be really annoying to get the third whip-saw in the row during this rally. While a whip-saw is not impossible, I think won't be the case this time. Bulls should not be too upset if a correction happens here. They are in control on longer time frames and corrections are followed by powerful rallies. 

All the best!


Wednesday, April 17, 2013

Some bearishness

Monday was a pretty bearish day with SPX losing over 30 points but there was no continuation since on Tuesday market regained 2/3rd of previous day loses. Yet today was another bearish day letting one wondering what is going to happen next. Are we going to have another fake move on the downside or this time we are going to have the long waited correction? 

EMAs are almost about to give a bearish crossing but we saw that before without seeing market crashing. I must say this time is technically looking just a little bit more bearish than before. Compared to the last few instances when EMAs gave a bearish crossing and price moved bellow SMA120, we have now a pretty flat SMA120. During this rally SMA120 was crossed 3 times, but every time SMA120 was rising. 

I am not going to make a big deal about this, more important I think is to see if market manages to stay above or plunges bellow the support line on weekly chart. Also pay attention to SMA 50 (SMA10 on weekly chart), a level that was not crossed during this 5-months rally. Actually, in the morning, SPX moved bellow SMA 50 but ended the day above this level.

Obviously, there is a 5 months uptrend line that was not crossed during this rally. A move bellow this uptrend line may send a very bearish signal, even more bearish than EMAs crossing. SPX is actually slightly bellow this uptrend line but not enough to consider it significant. If tomorrow is going to be at least as bearish as it was today we may see all these support levels on all time frame charts being conquered. 

The daily chart doesn't give up too many clues, just another support level, somewhere in the 1,547 area.

Gold was hammered this week and has lost now more than 20% since its top around 1,900, meaning that we should expect further move down. I made a little bit on money by shorting GDX (via options) but unfortunately I closed the transaction way too soon. Options are a different kind of "animal" compared to stocks, you can win or lose 20-100% in a matter of days, or sometimes in a matter of hours. I was glad I made a 100% profit in a couple of days. Today the same "put" was valued 10x my initial investment. Wow! 

The key support level on GLD was $152. Once this level was surpassed the gold was in free fall. We are most likely to see fake rebounds but overall gold and silver are going down. At least for a while. 

AAPL suffered another set back today but I don't understand why are people surprised. The stock is in a bear market so moves like this should be expected. I don't venture in guessing where AAPL could stop declining, I am just repeating something I mentioned before, the "head and shoulder" pattern predicts a drop to $360. I mention this because the it was a very clear (text book) head and shoulder.

In conclusion, market remains strong on long term but shows signs of weakness on short and intermediate time frames. We may have an answer about market direction as soon as tomorrow. If this is going to happen I am going to let you know.

All the best!


Sunday, April 14, 2013

All time highs

Another extremely bullish week (36 points gain) and SPX has reached all time highs. As you can imagine there is no resistance ahead since SPX is wondering now in uncharted territories. This doesn't mean market will go up forever. It will correct, of course, but nobody knows when this will happen. As for the bear market ... there are no long term bearish signs so far. 

Weekly chart looks very bullish. The only bearish signal is a negative divergence in MACD. Notice the downtrend line on MACD diagram (since the beginning of the last rally) while SPX is making higher highs. 

Daily chart is also bullish. Daily DMI turned negative two Fridays ago when SPX slipped bellow 1,540 in the morning but now, once again is positive. From 1,540 SPX rallied 55 points to 1,595 in only four trading days this week, giving up just 5 points on Friday. 

Needles to say that SPX also looks bullish on the two hour chart.

Contrarians say that market is going to correct when nobody is talking about correction anymore. I must say I hear less and less people talking about correction so maybe we are close to one!

All the best!


Friday, April 5, 2013

One day up, one day down...

... this was the pattern in the last 13 trading days! Yet the gains were a little bit larger than the drops that allowed SPX to climb to all time highs(1,571). However, with today's drop SPX is just slightly above the level seen 3 weeks ago.

Once again the EMAs on 2 hours chart look like are about to give a bearish crossing. The last two bearish crossings turned out to be fake moves on the downside. Is the market really going to give a third whip-saw in the row? That remains to be seen.

Talking about whip-saws let's look on 4 hours chart, a time frame that didn't give any whip-saw in the last 18 months. I hate to go to this time frame since the "buy" and "sell" signals are coming quite late compared to those on 2 hours chart but keeping in mind the last two whip-saws, especially the last one that took a bite of my overall profit I might consider.

Alternatively, I can blindly obey the crossing on two hours chart without trying to outsmart my own system when it gives a "buy" signal just a few days after a "sell" signal. Looking back, the whip-saw was not that bad, "sell" signal around 1,490-1,495 and a new "buy" signal around 1,515 for a 20-25 points whip-saw. Unfortunately, I waited until 1,540 to cover my shorts. Emotions, emotions, emotions! Emotions are my great enemy when trading.

Daily chart looks a little bit bearish; notice the lower low (not that clear) and also the fact that daily DMI has turned negative.

Weekly chart also shows a lower low but weekly DMI continues to be positive.

It's hard to draw a conclusion when market goes one day up and the next day down. Some people may argue that market is overbought. The thing is, during a rally, market can stay overbought for a long period of time. Just because market needs a corrections doesn't mean is going to get one. It needs a catalyst, some bad news to move down for good. Let's see if market manages to break down the pattern (one up, one down) on Monday. today it went very bearish in the morning but afternoon bulls managed to push it up. It actually went bellow rising SMA 120!

Take care!


Sunday, March 24, 2013

Slightly down

SPX closed slightly down this week but the bullish momentum remains unchallenged.

Bears could probably argue that market is making lower highs and lower lows on daily chart and that daily DMI is just a little bit positive but the action remains bullish. Bears pushed market down a few times this week but bulls recovered nicely.

On intermediate time frame SPX remains bullish, the two hour chart shows a bullish EMAs crossing and SPX above rising SMA 120.

Cyprus crisis is not over yet but it doesn't seem to affect the US market too much which is bad news for bears. In general just a rumor of a crisis pushes SPX down, but it doesn't seem to happen this time. SPX remains just slightly bellow all time highs around 1,565.

It is possible that market refuses to correct because the Cyprus crisis may end soon (as soon as Monday). If Cyprus fails to negotiate an agreement with the Euro zone lenders we are probably going to see market moving down but it remains unclear how much the US investors are scared about this. The well anticipated correction may still refuse to occur despite Cyprus.

All the best!


Friday, March 8, 2013

Bulls claim the week

It's never funny to lose money but this is exactly what happened this week. After a "sell" signal that looked pretty convincing bears couldn't not move SPX further down allowing bulls to re-claim the trend. 

The whip-saw was pretty bad because I waited for bulls to close above the most recent high (1,530) to cover my shorts. The new "buy" signal was actually not that bad, around 1,515 for a 20 points whip-saw but I didn't believe it and waited for a few more days. 

This is not the first and certainly not the last whip-saw I am going to encounter. Now I need to move on  and reinvest on the long side. It's easier saying this than doing it since after such a whip-saw and market advancing 200 points since the last bottom I am not that confident that the rally will continue. According to TA the rally is going to continue but at the emotional level I find it hard to accept this fact. Emotions are always bad when playing the stock market but what can we do, they are part of us and we cannot get rid of them just by snapping the fingers. Last time something similar happened, in 2010, I hardly had the courage to re-invest on the long side and lost a big chunk of the new rally. Eventually market corrected bellow the level I exited but on short term that was a lost opportunity. 

What is curious about this rally is that the dollar also rallied since the beginning of February. A strong dollar is usually bad for the market but exactly the opposite happened this time.

In conclusion, I am out of the market right now but not long yet despite the fact that all the charts are screaming bullishness. I may go long a little bit but most likely I am going to be a spectator for a while and re-invest on the long side after a real correction.

All the best!


Wednesday, March 6, 2013

Nasty whip-saw

What I was afraid it did happen, SPX closed above the previous high, 1,530. It looks like we have a whip-saw here, "sell" signal followed immediately buy a real "buy" signal. I don't think bears will turn the market in their favor from here since everything seems to go in bulls' favor, positive weekly and daily DMI, higher highs on both daily and weekly charts. 

Time to give back some gains. As for changing the pair of EMAs here... I don't know. This is the second time in five years when EMAs failed me this way. I've got other whip-saws before but in the end it turned out that the initial signal was for real. 

I have three options here regarding the time frame I am trading, I can leave thing as they are, I can go to hourly chart or alternatively to 4 hours chart. The 4 hours chart looks tempting in the current market conditions since it gets rid of all the whip-saws I had in the past but the "buy" and "sell" signal will come slower than on 2 hours chart which will make harder to make money especially on the short side. 

It's not impossible to see SPX moving down from here (there is no such thing as "impossible" in stock market) but you know me, I am trying to play "the highest probability game" and the highest probability is that market is going to go up from here. In bears' defense I haven't noticed, neither yesterday nor today, a huge volume which questions a little bit the new highs seen especially those in Dow. SPX is still 25 points shy of the "all times high". 

I'll be back on Friday with more details.

All the best!